Regional Impacts of Foreign Trade in China, 1984–1989

An issue of heated debate in China is whether the current economic reforms would lead to greater regional inequalities. In this paper one aspect of the reforms, the open-door policy, is put into focus. Specifically, the analysis investigates how the effect of foreign trade on economic development differs across regions, and whether these regional variations have changed from 1984 to 1989. Based upon the expansion method, models that resolve both the spatial and temporal variations of a relationship are constructed and estimated. The results indicate that foreign trade benefits core provinces and major industrial regions more than other parts of China, but that these differences have diminished in 1989. These findings may be interpreted as evidence of some diffusion of growth from more developed to less developed regions. On the other hand, regional linkages and the mechanisms of diffusion are not well understood and they deserve more attention and research.